Is Wal-Mart Setting Themselves Up For a Break-up?

Wal-Mart (WMT) is trading down almost another 1% after forecasting December same-store-sales as Flat to +1%.  This is better than the -0.1% now forecast in November, but at the same time it is a far cry from the old standard party line of +1% to +3% that had become habitual.

"Factors impacting our December comparable-store sales estimate include the impact of the hurricanes from last year and continued challenges in our apparel and home business," Chief Financial Officer Tom Schoewe said in a statement. "We expect to see improvements in our apparel and home categories by spring."

What is odd is that this has to include the effects of all the cheap cuts they made on so many products, including those plasma TV’s, computers, MP3 players, electronics, toys, and food.

CNBC’s David faber just commented something to the tune of "I just have to wonder when the street will call for this company to be broken up…," and you may think this is blasphemy.  We have, however, seen this before where a company just gets too big and too dominant to effectively be managed.  It is even harder when management is still only less-hated by consumer activists and media than a year ago. 

Back in the first quarter of the 1900’s Great Atlantic & Pacific Tea Inc. (GAP-NYSE) had reached some unbelievable count of 10,000 stores (in the 1920’s) using an "Economy Store" format.  It had opened more than 15,000 stores by 1930, but hard times were setting (a.k.a. The Great Depression) in and effectively managing logistics for a scale that large proved impossible.  After a converting to supermarkets came in for more efficiency they had widdled down to less than 5000 stores by the mid-1950’s.  It now has under 500 large stores.

Wal-Mart is losing out to target (TGT) and to Costco (COST) and others as consumers are getting past the "always the lowest prices" to more of a "I want low prices, but I really want what I want more than that crud you are trying to sell me" and as the consumer shopping experience there is just miserable.  Consumer activists might be harsher on the company than they should be considering we live in America, but the potential quasi-break-up could be starting in the formative stages.  At a minimum you could at least see a management break-up; and if so the company needs to bring in someone that can convey a "Nice & Fun" message rather than "The message from Darth Vader today is……"

You have to take dividends into consideration, but the chart says it all:
My partner and I each decided to do a piece on this without seeing each other’s work to do a test, so please excuse any overlaps.

Jon C. Ogg
November 30, 2006

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.